President Trump 's trade policy and the world economy
(Professor of international departments of Wayo Women's University,
Kageaki Yamashita）
The aim of President Trump 's economic policy is to protect the employment of American white workers and to suppress Chinese hegemony. Here, I will summarize the reason why President Trump 's trade policy on the former may be backfired as follows.
1. Will the aim of President Trump be realized？
① Retaliation tariff
Even if it is attempted to restore employment of workers in the United States due to high import tariffs in the United States, American exports are suppressed by retaliation tariffs in countries other than the United States, so that employment in the US decreases.
② Outflow of factory
If it becomes difficult for countries other than the United States to export to the United States due to high import tariffs in the United States, countries other than the US may move the factory to the United States as a countermeasure to that. President Trump is trying to increase employment in the United States by this.
However, in contrast to this, if countries other than the United States put up retaliatory tariffs on imports from the United States, companies in the United States could move their factories to countries other than the United States as a countermeasure.
After all, due to the import tariff of the United States and its retaliation tariff, factories flow into the United States, but factories may flow out from the US, so employment in the United States will not increase as much as President Trump intends.
③ Possibility to increase exports among countries other than the United States
When exports to the United States become difficult due to the high import tariffs of the United States, to compensate the export reduction.
Countries other than the United States may try to increase exports to each other among countries other than the United States due to free trade agreements (economic partnership agreements) in areas that do not include the United States.
TPP (Trans-Pacific Partnership Agreement) and RCEP (Regional Comprehensive Economic Partnership. Japan, China, Korea, India, Australia, New Zealand) and so on, and there is a possibility that more countries will participate and realize more trade liberalization.
Indeed, It is said that despite not being included in the countries of the Pacific Rim, the UK intends to participate in TPP..
④ (rate hike →) higher dollar → suppression of US exports
Although this is not a policy of President Trump, it is difficult to export from the US because the dollar's appreciation will increase with the interest rate rise by the central bank FRB of USA(★).
(Note★ As interest in the United States rises, people and companies in countries other than the US think that lending to the US can earn higher interest, and so they try to convert their home currency (eg. yen) to dollars and make a bank dollar deposit (it is nothing but to lend money to America). As a result, the dollar's worth will rise, that is, it will be the dollar's rise since the movement of wanting a dollar instead of the local currency is stronger.)
⑤ Decline in US exports to the US
It is said that most imported goods from China are from American companies.
⑥ Increase in the cost of purchasing raw materials and parts in American companies
American companies depend on importing many raw materials and parts. Many semiconductors also depend on imports. Due to the high tariffs in the United States, it is difficult for American companies to obtain good quality raw materials and parts.
Moreover, due to high import tariffs, the import price (including tariffs) will be higher, so the production cost of American companies will rise. From the above, the production and export of American companies are stagnant and the profit is reduced.
⑦ Rising inflation in the US
High import tariffs raise the import price of raw materials, parts, products, agricultural products imported by the US, so prices in the US will rise. The rise in prices will lower the living standard of American consumers.
⑧ Purchase of foreign products required by American consumers becomes difficult
It is difficult to obtain foreign products that American consumers want. For example, American consumers wanting to buy Japanese cars will find it difficult.
As a result of President Trump 's trade policy, there is a possibility that production, export and employment in the United States will decrease rather than increase, due to the above reasons ① to ⑥. Taking ③ into consideration, it is possible that only US exports will not increase. Also, due to the above reasons of ⑦ and ⑧,dissatisfaction of American consumers may increase.
2. Possibility of global economic deterioration
If trade decreases between the United States and other countries in the trade war that President Trump started, there is a possibility that the world economy will deteriorate by itself.
①Worsening economic conditions in emerging countries
That is not all. Emerging countries currencies like the Turkey are declining in value due to the US interest rate hike and president 's import restriction measures (→countries other than US will not be able to earn dollars by increasing exports). As a result, inflation is occurring in Turkey and other countries.
This is itself a deterioration of emerging economies, and further emerging economies will deteriorate if emerging economies tighten monetary policy to prevent this inflation and further raise the value of their own currency. Actually, Argentina's economy is like that.
②Possibility of European economic deterioration.
Also, as the value of the Turkish currency Lira decreases, the repayment burden of Turkey borrowed from European banks such as Spain will increase(★★), then Turkey will increase the possibility of being unable to return the dollar. If so, the bad debts of European banks will increase and the management of European banks will worsen.
(Note★★ For example, when the exchange rate is 1 lira = 2 dollars (0.5 liras = 1 dollar for both sides divided by 2), Turkish people and companies borrow 1 dollar and convert to lira to 0.5 lira. For example, when returning that dollar one year later, if the lira depreciation progresses and the exchange rate is 1 lira = 1 dollar, 1 lira is required to return 1 dollar. That is, substantially although you borrowed 0.5 lira, you will return 1 lira. In this sense repayment burden becomes heavy.)
Furthermore, if banking management deteriorates, European banks may be reluctant to lend so that they will narrow down lenders only to good quality companies with positive repayment not to lose any more losses. If that happens, the management of many European companies will deteriorate and the European economy will deteriorate★★★.
(Note★★★ This situation is similar to the Greek crisis in 2009. However, in Greece the Greek government was borrowing money from European banks, whereas in Turkey in most cases borrowers are private companies in Turkey and since the currency of Greece is Euro, the value of the Greek currency can not go down against the euro and the value of the euro will not drop against the dollar just by the deterioration of the Greek economy.)
③Possibility of global economic deterioration
As the economies of emerging countries and Europe deteriorate in this way, there is a possibility that the world exports to these countries decrease.
Then the world economy may decline and deteriorate. Naturally, the world economy also includes the American economy.
3. Conclusion
In the end, the trade war that President Trump commenced would not bring about the effect he would have intended to the United States.
Also, if the US economy deteriorates through deterioration of the world economy due to the decline in the currency value of emerging countries by rise in interest of the US in addition to President Trump 's trade war, there is a possibility that the increase in American employment will be hindered.
From the above, President Trump 's trade war is likely to be backfired, at least there is no effect that he intends.
When such a thing becomes clear, will Mr. Trump 's popularity maintain?
Last year I will write down what I wrote in Twitter.
"AMERICA FIRST may become AMERICA LAST"
The intention of hitting the opponent may end up hitting himself after all.
#worldeconomy #Trump #tradewar
(Professor of international departments of Wayo Women's University,
Kageaki Yamashita）
The aim of President Trump 's economic policy is to protect the employment of American white workers and to suppress Chinese hegemony. Here, I will summarize the reason why President Trump 's trade policy on the former may be backfired as follows.
1. Will the aim of President Trump be realized？
① Retaliation tariff
Even if it is attempted to restore employment of workers in the United States due to high import tariffs in the United States, American exports are suppressed by retaliation tariffs in countries other than the United States, so that employment in the US decreases.
② Outflow of factory
If it becomes difficult for countries other than the United States to export to the United States due to high import tariffs in the United States, countries other than the US may move the factory to the United States as a countermeasure to that. President Trump is trying to increase employment in the United States by this.
However, in contrast to this, if countries other than the United States put up retaliatory tariffs on imports from the United States, companies in the United States could move their factories to countries other than the United States as a countermeasure.
After all, due to the import tariff of the United States and its retaliation tariff, factories flow into the United States, but factories may flow out from the US, so employment in the United States will not increase as much as President Trump intends.
③ Possibility to increase exports among countries other than the United States
When exports to the United States become difficult due to the high import tariffs of the United States, to compensate the export reduction.
Countries other than the United States may try to increase exports to each other among countries other than the United States due to free trade agreements (economic partnership agreements) in areas that do not include the United States.
TPP (Trans-Pacific Partnership Agreement) and RCEP (Regional Comprehensive Economic Partnership. Japan, China, Korea, India, Australia, New Zealand) and so on, and there is a possibility that more countries will participate and realize more trade liberalization.
Indeed, It is said that despite not being included in the countries of the Pacific Rim, the UK intends to participate in TPP..
④ (rate hike →) higher dollar → suppression of US exports
Although this is not a policy of President Trump, it is difficult to export from the US because the dollar's appreciation will increase with the interest rate rise by the central bank FRB of USA(★).
(Note★ As interest in the United States rises, people and companies in countries other than the US think that lending to the US can earn higher interest, and so they try to convert their home currency (eg. yen) to dollars and make a bank dollar deposit (it is nothing but to lend money to America). As a result, the dollar's worth will rise, that is, it will be the dollar's rise since the movement of wanting a dollar instead of the local currency is stronger.)
⑤ Decline in US exports to the US
It is said that most imported goods from China are from American companies.
⑥ Increase in the cost of purchasing raw materials and parts in American companies
American companies depend on importing many raw materials and parts. Many semiconductors also depend on imports. Due to the high tariffs in the United States, it is difficult for American companies to obtain good quality raw materials and parts.
Moreover, due to high import tariffs, the import price (including tariffs) will be higher, so the production cost of American companies will rise. From the above, the production and export of American companies are stagnant and the profit is reduced.
⑦ Rising inflation in the US
High import tariffs raise the import price of raw materials, parts, products, agricultural products imported by the US, so prices in the US will rise. The rise in prices will lower the living standard of American consumers.
⑧ Purchase of foreign products required by American consumers becomes difficult
It is difficult to obtain foreign products that American consumers want. For example, American consumers wanting to buy Japanese cars will find it difficult.
As a result of President Trump 's trade policy, there is a possibility that production, export and employment in the United States will decrease rather than increase, due to the above reasons ① to ⑥. Taking ③ into consideration, it is possible that only US exports will not increase. Also, due to the above reasons of ⑦ and ⑧,dissatisfaction of American consumers may increase.
2. Possibility of global economic deterioration
If trade decreases between the United States and other countries in the trade war that President Trump started, there is a possibility that the world economy will deteriorate by itself.
①Worsening economic conditions in emerging countries
That is not all. Emerging countries currencies like the Turkey are declining in value due to the US interest rate hike and president 's import restriction measures (→countries other than US will not be able to earn dollars by increasing exports). As a result, inflation is occurring in Turkey and other countries.
This is itself a deterioration of emerging economies, and further emerging economies will deteriorate if emerging economies tighten monetary policy to prevent this inflation and further raise the value of their own currency. Actually, Argentina's economy is like that.
②Possibility of European economic deterioration.
Also, as the value of the Turkish currency Lira decreases, the repayment burden of Turkey borrowed from European banks such as Spain will increase(★★), then Turkey will increase the possibility of being unable to return the dollar. If so, the bad debts of European banks will increase and the management of European banks will worsen.
(Note★★ For example, when the exchange rate is 1 lira = 2 dollars (0.5 liras = 1 dollar for both sides divided by 2), Turkish people and companies borrow 1 dollar and convert to lira to 0.5 lira. For example, when returning that dollar one year later, if the lira depreciation progresses and the exchange rate is 1 lira = 1 dollar, 1 lira is required to return 1 dollar. That is, substantially although you borrowed 0.5 lira, you will return 1 lira. In this sense repayment burden becomes heavy.)
Furthermore, if banking management deteriorates, European banks may be reluctant to lend so that they will narrow down lenders only to good quality companies with positive repayment not to lose any more losses. If that happens, the management of many European companies will deteriorate and the European economy will deteriorate★★★.
(Note★★★ This situation is similar to the Greek crisis in 2009. However, in Greece the Greek government was borrowing money from European banks, whereas in Turkey in most cases borrowers are private companies in Turkey and since the currency of Greece is Euro, the value of the Greek currency can not go down against the euro and the value of the euro will not drop against the dollar just by the deterioration of the Greek economy.)
③Possibility of global economic deterioration
As the economies of emerging countries and Europe deteriorate in this way, there is a possibility that the world exports to these countries decrease.
Then the world economy may decline and deteriorate. Naturally, the world economy also includes the American economy.
3. Conclusion
In the end, the trade war that President Trump commenced would not bring about the effect he would have intended to the United States.
Also, if the US economy deteriorates through deterioration of the world economy due to the decline in the currency value of emerging countries by rise in interest of the US in addition to President Trump 's trade war, there is a possibility that the increase in American employment will be hindered.
From the above, President Trump 's trade war is likely to be backfired, at least there is no effect that he intends.
When such a thing becomes clear, will Mr. Trump 's popularity maintain?
Last year I will write down what I wrote in Twitter.
"AMERICA FIRST may become AMERICA LAST"
The intention of hitting the opponent may end up hitting himself after all.
#worldeconomy #Trump #tradewar